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Tag: federal deficit

The now annual release of House Budget Committee chairman Paul Ryan’s (R-WI) budget proposal has replaced the release of the president’s budget proposal as my least favorite policy event of the year. The president promises big government and Ryan promises smaller big government. What makes the Ryan proposal more aggravating is that it’s hardly a vision of limited government, but the left (and many on the right) treats it like it is.

According to his numbers, Ryan’s budget ideas would reduce federal spending as a percentage of GDP from 22.2 percent this year to 19.1 percent in 2023. According to Democrats and liberals, such a savage reduction in the federal footprint would inflict unfathomable pain on various groups of Americans.

Here’s Rep. Steny Hoyer (D-MD) with the standard Democratic scare-mongering that we can expect to hear over and over again in the coming months:

Other than perhaps Oompa Loompas, I believe Rep. Hoyer got’em all (rich males aren’t included because they don’t pay their “fair share”).

Instead of delving any further into Ryan’s numbers, I’m just going to get to my point. Proposing that the federal government borrow and spend less than what is currently projected is certainly better than the alternative. But if your goal is limited government then there has to actually be limits on what all the government is involved in.

I don’t see anything in Ryan’s proposal that would end the federal government’s involvement in education, job training, energy, transportation, etc., etc. Yes, Ryan calls for ending Obamacare, but that wouldn’t end the federal government’s involvement in health care. Yes, Ryan says that higher education subsidies should be capped, but that wouldn’t end the federal government’s involvement in education. And so on. How the federal government delivers the goods would change (e.g., block-granting Medicaid and premium support for Medicare), but more efficient government isn’t the same as limited government.

Will sequestration undermine U.S. national security? Hardly. Today, the Cato Institute released a new infographic putting these minor cuts in perspective.

Military spending will remain at roughly 2006 levels—$603 billion, higher than peak U.S. spending during the Cold War. Meanwhile, we live in a safer world. The Soviet Union has been dead for more than two decades; no other nation, or combination of nations, has emerged since that can pose a comparable threat. We should have a defense budget that reflects this reality.

To be clear, sequestration was no one’s first choice. But the alternative—ever-increasing military spending detached from a legitimate debate over strategy—is worse. We should have had such a debate, one over the roles and missions of the U.S. military, long before this day of reckoning. And politicians could have pursued seriousproposalsto prudently reduce military spending. Instead, they chose the easy way out, avoiding difficult decisions that would have allowed for smarter cuts.

Until now, there have been few constraints on Washington’s ability to spend what it pleases on the military. As my colleagues Benjamin Friedman and Justin Logan put it, Americans “buy defense like rich people shop, ignoring the balances of costs and benefits.”

Policymakers can’t postpone the tradeoffs forever, especially when the public has grown increasingly weary of foreign entanglements. If forced to choose between higher taxes, less military spending, or lower domestic spending, in order to balance the budget, the military fares least well, with solid pluralities favoring cuts in military spending over cuts in other programs.

Today’s Washington Post has an excellent article by David A. Fahrenthold on the gimmicks used by both Democrats and Republicans in the April 2011 budget deal to create phantom ‘cuts’ in federal spending:

In the real world, in fact, many of their “cuts” cut nothing at all. The Transportation Department got credit for “cutting” a $280 million tunnel that had been canceled six months earlier. It also “cut” a $375,000 road project that had been created by a legislative typo, on a road that did not exist.

At the Census Bureau, officials got credit for a whopping $6 billion cut, simply for obeying the calendar. They promised not to hold the expensive 2010 census again in 2011.

Today, an examination of 12 of the largest cuts shows that, thanks in part to these gimmicks, federal agencies absorbed $23 billion in reductions without losing a single employee…

Congress, for instance, “cut” $14.6 million from its own budget to build the Capitol Visitor Center. That changed nothing. The center was already built…

At the Pentagon, for instance, the April 2011 bill required a whopping $6.2 billion cut to military construction. But through a combination of congressionally installed gimmicks and military ingenuity, the Pentagon escaped nearly unscathed…Total real-world savings: $25.2 million. Just 0.4 percent of the total that Congress counted as “cut” on paper.

Not all the bill’s cuts were illusory, however. The Post’s analysis found five large cuts that turned out to be very real.

None of them actually caused an agency in Washington to shed federal personnel. Instead, they reduced the money that passed through those agencies to state and local projects…

Now Washington is facing the “sequester,” which would cut $85 billion starting March 1. The administration has sought to persuade Republicans to cancel it or replace it with a package of spending cuts and tax increases.

That, at times, has made for an awkward argument. Two years later, it appears that some of the budget cuts from April 2011 turned out to be less painful than originally believed. But the White House says that can’t happen again.

This time, it says, the cuts would be very real and very painful.

“Reductions that were possible in 2011 are not possible in 2013,” said [Robert] Gordon, of the Office of Management and Budget. “The resources that could be cut, they’ve been cut. The low-hanging fruit is gone.”

In the bargaining over avoiding the fiscal cliff, President Obama has taken to framing the argument this way:

We can solve this problem. All Congress needs to do is pass a law that would prevent a tax hike on the first $250,000 of everybody’s income – everybody. (Applause.) That means 98 percent of Americans – and probably 100 percent of you – (laughter) – 97 percent of small businesses wouldn’t see their income taxes go up a single dime. Even the wealthiest Americans would still get a tax cut on the first $250,000 of their income. But when they start making a million, or $10 million, or $20 million you can afford to pay a little bit more. (Applause.) You’re not too strapped.

I’m no political expert, but this seems like a pretty effective, if demagogic, frame: “Ol’ Boehner is just doing the bidding of his bazillionaire paymasters, trying to stick it to regular folks like you.” By framing the debate as being about whether very wealthy people “can afford to pay a little bit more,” Obama skews things in his favor. (On the substance of the argument about increasing taxes to close the gaping fiscal maw, try this from Alan Reynolds or this from Sen. Rob Portman (R-OH).)

And what does John Boehner think about Obama’s framing? Not much, obviously: “We have a huge national debt because Washington spends too much, not because it doesn’t tax people enough.” Boehner rejects the whole affordability frame, proposing his own—“is the problem taxes or spending?”—and adding on an argument that increasing taxes will hurt economic growth. So you’ve got dueling frames.

But what’s of interest to me is the analog of Obama’s frame in the foreign policy/defense spending discussion. In that debate, neoconservatives and liberal imperialists have framed the debate the same way Obama has framed the fiscal cliff debate: except in that case, it’s not about whether wealthy people can afford to pay higher taxes, but whether the United States can afford to continue spending around 50 percent of world military expenditures. Take it away, Robert Kagan:

What about the financial expense? Many seem to believe that the cost of these deployments, and of the armed forces generally, is a major contributor to the soaring fiscal deficits that threaten the solvency of the national economy. But this is not the case, either. As the former budget czar Alice Rivlin has observed, the scary projections of future deficits are not “caused by rising defense spending,” much less by spending on foreign assistance. The runaway deficits projected for the coming years are mostly the result of ballooning entitlement spending. Even the most draconian cuts in the defense budget would produce annual savings of only $50 billion to $100 billion, a small fraction—between 4 and 8 percent—of the $1.5 trillion in annual deficits the United States is facing.

Here again, if the debate is about whether the United States—let’s call us the One Percenters here—can afford to continue frittering away money playing globocop, the advantage is with Kagan and his confreres. But in both cases, Obama and Kagan try to substitute an affordability argument for a propriety/desirability argument. Of course wealthy people can “afford” to pay higher taxes—they’ve done so before, after all. By the same token, the United States can afford to continue funding its globe-girdling military presence. But in neither case do these affordability arguments answer the question: What should happen? To say something is affordable is not to say it is preferable

Obama doesn’t say, “We’ve spent a ton of money over the past 10 years and entitlement costs are ballooning so we’re going to squeeze as much as we can out of the rich and then see where we go from there.” Similarly, Kagan doesn’t lead with his argument that the debt and deficit should be fixed by increasing taxes and sprinkling pixie dust on entitlement costs. Instead, he wants to have the affordability debate. As well he ought to, since the public is increasingly disenchanted with the interventionist foreign policy program.

In neither case should we let the affordability argument carry the day. Boehner rejects the affordability framing of the tax increase debate. Conservatives ought to realize in both cases that something’s affordability is not synonymous with its propriety.

Today’s Arena question boils down to this: are Americans able to handle the truth—that we’re going broke, as Paul Ryan puts it, plainly. P.T. Barnum allegedly said, “There’s a sucker born every minute.” Unfortunately, voters too often prove him right.

As I implied in my post yesterday, Robin Hood Democrats, promising “free goods” provided by the rich, are betting that Americans are too stupid to see through their many scams. Their cynicism is as boundless as their politics of personal destruction. To take the simplest example, in June 2009, and often since, Obama assured us: “No matter how we reform health care, we will keep this promise: … If you like your healthcare plan, you will be able to keep your healthcare plan. Period. No one will take it away. No matter what.” As Professors Richard Epstein and David Hyman have shown, he’s already broken that promise in multiple ways.

But give the president his due: he makes Robin Hood look like a piker. His latest? In Iowa yesterday he announced that the federal government will purchase over $150 million in meat and fish to help ranchers survive the drought. “That food is going to be spent by folks over at the Pentagon and other places.” Never mind that you don’t “spend food,” this is simply shades of Solyndra—the flimflammery that runs through this feckless administration. But the main question is, will Americans fall for it again?

Contrary to the clear language of the statute and congressional intent, this [IRS] rule issues tax credits in health insurance “exchanges” established by the federal government. It thus triggers a $2,000-per-employee tax on employers and appropriates billions of dollars to private health insurance companies in states with a federal Exchange, also contrary to the clear language of the statute and congressional intent. Since those illegal expenditures will exceed the revenues raised by the illegal tax on employers, this rule also increases the federal deficit by potentially hundreds of billions of dollars, again contrary to the clear language of the statute and congressional intent.

The rule is therefore illegal. It lacks any statutory authority. It is contrary to both the clear language of the PPACA and congressional intent. It cannot be justified on other legal grounds.

On balance, this rule is a large net tax increase. For every $2 of unauthorized tax reduction, it imposes $1 of unauthorized taxes on employers, and commits taxpayers to pay for $8 of unauthorized subsidies to private insurance companies. Because this rule imposes an illegal tax on employers and obligates taxpayers to pay for illegal appropriations, it is quite literally taxation without representation.

Three remedies exist. The IRS should rescind this rule before it takes effect in 2014. Alternatively, Congress and the president could stop it with a resolution of disapproval under the Congressional Review Act. Finally, since this rule imposes an illegal tax on employers in states that opt not to create a health insurance “exchange,” those employers and possibly those states could file suit to block this rule in federal court.

Requiring the IRS to operate within its statutory authority will not increase health insurance costs by a single penny. It will merely prevent the IRS from unlawfully shifting those costs to taxpayers.